Facts/Contentions:
According to plaintiff: is was an action for insurance bad faith based on defendant Insurance Company’s wrongful withdrawal of its defense and refusal to settle, a civil lawsuit against plaintiff. In the cvivil lawsuit,plaintiff was charged with negligently hiring and inadequately supervising her husband, who was accused of molesting children at the family’s daycare facility. Plaintiff was neither accused, nor charged with, participating in the alleged molestation. Rather, her potential civil liability was based upon her alleged independent failure to recognize and stop her husband’s alleged wrongdoing.

Defendant initially agreed to defend plaintiff in the civil lawsuit. However, it later abandoned the defense and rejected a $100,000 policy limits demand because plaintiff ‘s husband had been convicted on charges of molestation at the trial court level. When defendant withdrew the defense, the conviction was on appeal. (e conviction was later reversed and the charges dismissed.) Lacking the funds to defend herself, plaintiff suered a verdict of $2,806,000. Plaintiff alleged that the policy exclusions barring coverage for claims arising out of any dishonest, fraudulent, criminal, or malicious act and claims for loss arising out of the willful violation of a penal statute or ordinance committed by, or with the knowledge of, any insured directly conicted with the more precise language of the Endorsement, which specically added coverage for (1) losses arising out of willful criminal acts such as child molestation; and (2) deleted the exclusion for any claim or loss arising out of an allegation that any insured was liable for, intentionally or unintentionally, hiring, employing, supervising, failing to supervise, or failing to prevent any other person who engaged in child abuse.

The policy application asked plaintiff whether, in the past ve years, she was aware of any claims or incidents that might result in a claim. Although plaintiff’s husband was involved in an incident that predated the application, the incident took place more than ve years before she completed the application.

Defendant withdrew its defense on the grounds that the policy excluded coverage for the criminal acts of any insured. During the pendency of this suit, defendant also asserted that plaintiff made material misrepresentations on her application for insurance and that the policy was therefore voice ab initio. Claimed Injuries NA Claimed Damages According to plaintiff: $2,806,000. Settlement Discussions Not reported